Bloomberg News

WASHINGTON - Personal spending in June had its biggest gain in three months and outpaced a rise in incomes, the government announced Tuesday.

Personal spending on goods and services rose 0.5% - equaling the increase in March - after a revised 0.3% gain in May, the Commerce Department said. Incomes rose 0.4%, against a revised 0.3% rise in May.

"With everyone employed and incomes strong, we are going to continue to see" such increases, said Tim Rogers, chief economist at Briefing.com in Boston. "I don't see any slowing in spending. There's still plenty of momentum."

Still, the June increase capped a quarter in which consumer spending was the slowest in three years. The rise suggests that the Federal Reserve's six interest-rate increases have started to cool the economy.

Analysts had expected spending to rise 0.4% and incomes 0.5% in June, compared with increases of 0.2% and 0.4% in May.

Consumer spending accounts for two-thirds of economic output and has underpinned record U.S. economic expansion. Fed policymakers track it to assess whether demand for goods and services is outstripping supply, which could lead to inflation.

Spending on durable goods rose 0.5% after a 0.7% decrease in May. It was up 0.5% for nondurable goods as well as for services.

Disposable income, or the money left over after taxes, rose 0.3%, the same as in May. Income was boosted by an increase in private wages and farm income but was restrained by a decrease in government salaries and government transfer payments.

The personal savings rate was 0.1%, versus 0.3% in May.

The government said last week in its advance estimate of second-quarter gross domestic product that consumer spending rose at a 3% annual rate in the three months, compared with 7.6% in the first quarter. Second-quarter spending was the slowest since a 1.9% rate of increase in the like period of 1997.

Fed Chairman Alan Greenspan told Congress in July that "demand may be moving closer into line with the rate of advance in the economy's potential, given our continued impressive productivity growth."

Those remarks suggested that central bankers might refrain from raising interest rates when they meet in August, unless consumer demand starts to accelerate. Productivity gains enable businesses to absorb higher labor costs and thus keep inflation in check.

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